Beruflich Dokumente
Kultur Dokumente
TAXATION LAW
(1994 – 2006)
Table of Contents
GENERAL PRINCIPLES
Basic Features: Present Income Tax System (1996)
Basic Stages or Aspects of Taxation (2006)
Collection of Taxes: Authority; Ordinary Courts (2001)
Collection of Taxes: Prescription (2001)
Direct Tax vs. Indirect Tax (1994)
Direct Tax vs. Indirect Tax (2000)
Direct Tax vs. Indirect Tax (2001)
Direct Tax vs. Indirect Tax (2006) Double Taxation (1997)
Double Taxation: What Constitutes DT? (1996)
Double Taxation; Indirect Duplicate Taxation (1997)
Double Taxation; License Fee vs. Local Tax (2004)
Double Taxation; Methods of Avoiding DT (1997)
Imprescriptibility of Tax Laws (1997)
Power of Taxation: Equal Protection of the Law (2000)
Power of Taxation: Inherent in a Sovereign State (2003)
Power of Taxation: Legality; Local Gov’t Taxation (2003)
Power of Taxation: Legislative in Nature (1994)
Power of Taxation: Limitations of the Congress (2001)
Power of Taxation: Limitations: Passing of Revenue Bills (1997)
Power of Taxation: Limitations; Power to Destroy (2000)
Power of Taxation: Revocation of Exempting Statutes (1997)
Power of Taxation; Inherent in a Sovereign State (2005)
Power of Taxation; Legislative in Nature (1996)
Purpose of Taxation; Interpretation (2004
Purpose of Taxation; Legislative in Nature (2004)
Rule on Set-Off or Compensation of Taxes (1996)
Rule on Set-Off or Compensation of Taxes (2001)
Rule on Set-Off or Compensation of Taxes (2005)
Rule on Set-Off or Compensation on Taxes (2005)
Tax Avoidance vs. Tax Evasion (1996)
Tax Avoidance vs. Tax Evasion (2000
Tax Exemptions: Nature & Coverage; Proper Party (2004)
Tax Laws; BIR Ruling; Non-Retroactivity of Rulings (2004)
Tax Pyramiding; Definition & Legality (2006)
Taxpayer Suit; When Allowed (1996)
Uniformity in the Collection of Taxes (1998)
INCOME TAXATION
Basic: Allowable Deductions vs. Personal Exemptions (2001)
Basic: Meaning of Taxable Income (2000)
Basic: Principle of Mobilia Sequuntur Personam (1994)
Basic: Proper Allowance of Depreciation (1998)
Basic: Sources of Income: Taxable Income (1998)
Basic: Tax Benefit Rule (2003)
Basic; Basis of Income Tax (1996)
Basic; Gross Income: Define (1995)
Basic; Income vs. Capital (1995)
Basic; Schedular Treatment vs. Global Treatment (1994)
Compensation; Income Tax: Due to Profitable Business Deal (1995)
Corporate: Income: Donor’s tax; Tax Liability (1996)
Corporate; Income Tax; Reasonableness of the Bonus (2006)
Corporate; Income: Coverage; "Off-Line" Airline (1994)
Corporate; Income: Coverage; "Off-Line" Airline (2005)
Dividends: Disguised dividends (1994)
Dividends; Income Tax; Deductible Gross Income (1999)
Effect; Condonation of Loan in Taxation (1995)
Fringe Benefit Tax: Covered Employees (2001)
Fringe Benefit Tax: Employer required to Pay (2003)
Interest: Deficiency Interest: define (1995)
Interest: Delinquency Interest: define (1995)
ITR: Personal Income; Exempted to File ITR (1997)
ITR; Domestic Corporate Taxation (1997)
ITR; Domestic Corporate Taxation (2001)
ITR; Personal Income: Two Employment (2001)
ITR; Personal Income; GSIS Pension (2000)
ITR; Personal Income; Married Individual (2004)
ITR; Taxpayer; Liabilities; Falsified Tax Return (2005)
Partnership: Income Tax (1995)
Personal; Income Tax: Non-Resident Alien (2000)
Personal; Income Tax: Non-Resident Citizen (1999)
Personal; Income Tax: Tax-Free Exchange (1997)
Personal; Income Tax; Contract of Lease (1995)
Personal; Income Tax; Married Individual (1997)
Personal; Income Tax; Retiring Alien Employee (2005)
Personal; Income Taxation: Non-Resident Citizen (1997)
Taxable Income: Illegal Income (1995)
Taxable or Non-Taxable; Income and Gains (2005)
Withholding Tax: Non-Resident Alien (2001)
Withholding Tax: Retirement Benefit (2000)
Withholding Tax: Retirement Benefit (2000)
Withholding Tax: Royalty (2002)
Withholding Tax; Coverage (2004)
Withholding Tax; Domestic Corporation; Cash Dividends (2001)
Withholding Tax; Income subject thereto (2001)
Withholding Tax; Non-Resident Alien (1994)
Withholding Tax; Non-Resident Corporation (1994)
Withholding Tax; Reader's Digest Award (1998)
Withholding Tax; Time Deposit Interest; GSIS Pension (1994)
GENERAL PRINCIPLES
INCOME TAXATION
2) If the employer is an obstetrician who is self-em¬ployed, the basis of X's income will only be
P5,000.00 if it is proven that the free board and lodging is given within the business premises of
said employer for his convenience and that the free lodging is required to be accepted by X as
condition for employment. Otherwise, X would be taxed on P6,500.00.
employer for the employer's convenience which are necessary incidents to proper performance of
the military personnel's duties.
Exclusions & Inclusions; Gifts over and above the Retirement Pay (1995)
Mr. Quiroz worked as chief accountant of a hospital for forty-five years. When he retired at 65
he received retirement pay equivalent to two months' salary for every year of service as provided
in the hospital BIR approved retirement plan. The Board of Directors of the hospital felt that the
hospital should give Quiroz more than what was provided for in the hospital's retirement plan in
view of his loyalty and invaluable services for forty-five years; hence, it resolved to pay him a
gratuity of P1 Million over and above his retirement pay.
The Commissioner of Internal Revenue taxed the P1 Mil¬lion as part of the gross compensation
income of Quiroz who protested that it was excluded from income because
(a) it was a retirement pay, and (b) it was a gift.
1) Is Mr. Quiroz correct in claiming that the additional
P1 Million was retirement pay and therefore
excluded from income? Explain.
2) Is Mr. Quiroz correct in claiming that the additional P1 Million was gift and therefore
excluded from income? Explain.
SUGGESTED ANSWERS:
1) No. The additional P1 million is not a retirement pay but a part of the gross compensation
income of Mr. Quiroz. This is not a retirement benefit received in accordance with a reasonable
private benefit plan maintained by the employer as it was not paid out of the retirement plan.
Accordingly, the amount received in excess of the retirement benefits that he is entitled to
receive under the BIR-approved retirement plan would not qualify as an exclusion from gross
income.
2) No. The amount received was in consideration of his loyalty and invaluable services to the
company which is clearly a compensation income received on account of employment. Under the
employer's 'motivation test,' emphasis should be placed on the value of Mr. Quiroz services to
the company as the compelling reason for giving him the gratuity, hence it should constitute a
taxable income. The payment would only qualify as a gift if there is nothing but 'good will,
esteem and kindness' which motivated the employer to give the gratuity. (Stonton vs. U.S., 186
F. Supp. 393). Such is not the case in the herein problem.
ALTERNATIVE ANSWER:
Yes. The 1 million is not compensation income subject to income tax but a gift from his
employer. There was no evidence presented to show that he was not fully compen¬sated for his
45 years of service. If his services contributed in a large measure to the success of the hospital, it
did not give rise to a recoverable debt. The P1 million is purely a gratuity from the company. It is
a taxable gift to the transferor. Under the Tax Code, gifts are excluded from gross income
therefore exempt from income tax. (Sec. 28{b)(3), NIRC; Pirovano vs. Commissioner)
Exclusions & Inclusions; ITR; 13th month pay and de minimis benefits (2005)
State with reasons the tax treatment of the following in the preparation of annual income tax
returns: 13th month pay and de minimis benefits;
SUGGESTED ANSWER:
The 13th month pay not exceeding P30,000.00 shall not be reported in the income tax return
because it is excluded from gross income (Sec. 32[B][7], [e], NIRC) The amount of the 13th
month pay in excess of P30,000.00 shall be reported in the annual income tax return.
De minimis benefits which do not exceed the ceilings are excluded from gross income, and not
to be considered for determining the P30,000.00 ceiling hence not reportable in the annual
income tax return. (Sec. 2.78.1[A][3], R.R. 2-98 as amended by Sec. 2.33 [C] and further
amended by R.R. No. 8-2000)
Donor’s Tax; Sale of shares of Stock & Sale of Real Property (1999)
A, an individual, sold to B, his brother-in-law, his lot with a market value of P1,000,000 for
P600.000. A's cost in the lot is P100.000. B is financially capable of buying the lot.
A also owns X Co., which has a fast growing business. A sold some of his shares of stock in X
Co. to his key executives in X Co. These executives are not related to A. The selling price is
P3,000,000, which is the book value of the shares sold but with a market value of P5,000,000.
A's cost in the shares sold is P1,000,000. The purpose of A in selling the shares is to enable his
key executives to acquire a propriety interest in the business and have a personal stake in its
business. Explain if the above transactions are subject to donor's tax. (5%)
SUGGESTED ANSWER:
The first transaction where a lot was sold by A to his brother-in-law for a price below its fair
market value will not be subject to donor's tax if the lot qualifies as a capital asset. The transfer
for less than adequate and full consideration, which gives rise to a deemed gift, does not apply to
a sale of property subject to capital gains tax. (Section 100, NIRC). However, if the lot sold is an
ordinary asset, the excess of the fair market value over the consideration received shall be
considered as a gift subject to the donor's tax.
The sale of shares of stock below the fair market value thereof is subject to the donor's tax
pursuant to the provisions of Section 100 of the Tax Code. The excess of the fair market value
over the selling price is a deemed gift.
ALTERNATIVE ANSWER:
The sale of shares of stock below the fair market value will not give rise to the imposition of the
donor's tax. In determining the gain from the transfer, the selling price of the shares of stocks
shall be the fair market value of the shares of stocks transferred. (Section 6, RR No. 2-82). In
which case, the reason for the imposition of the donor's tax on sales for inadequate consideration
does not exist.
BUSINESS TAXES
BIR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (1996)
1. May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes by the
Bureau of Internal Revenue? Explain.
SUGGESTED ANSWER:
Yes. When a decision of the Commissioner on a tax protest is appealed to the CTA pursuant to
Sec. 11 of RA. No. 1125 (law creating the CTA) in relation to Sec. 229 of the NIRC, such appeal
does not suspend the payment, levy, distraint and/or sale of any of the taxpayer's property for the
satisfaction of his tax liability. However, when in the opinion of the CTA the collection of the
tax may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of
the proceedings may suspend or restrain the collection of the tax and require the taxpayer either
to deposit the amount claimed or to file a surety bond for not more than double the amount with
the Court.
2. May the tax liability of a taxpayer be compromised during the pendency of an appeal?
Explain.
SUGGESTED ANSWER:
Yes. During the pendency of the appeal, the taxpayer may still enter into a compromise
settlement of his tax liability for as long as any of the grounds for a compromise i.e.; doubtful
validity of assessment and financial incapacity of taxpayer, is present. A compromise of a tax
liability is possible at any stage of litigation, even during appeal, although legal propriety
demands that prior leave of court should be obtained (Pasudeco vs. CIR L-39387, June 29,
1982).
BIR; Deficiency Tax Assessment vs. Tax Refund / Tax Credit (2005)
Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain.
SUGGESTED ANSWER:
Yes, the deficiency tax assessment is a bar to a tax refund or credit. The Taxpayer cannot be
entitled to a refund and at the same time liable for a tax deficiency assessment for the same year.
The deficiency assessment creates a doubt as to the truth and accuracy of the Tax Return. Said
Return cannot therefore be the basis of the refund
(Commissioner of Internal Revenue v. Alltel [2002], citing Commissioner of Internal Revenue v.
Court of Appeals, City Trust Banking Corporation and Court of Tax Appeals,
G.R. No. 106611, July 21, 1994)
BIR; Distraint; Prescription of the Action (2002)
Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged
exclusively in international shipping. He and his wife, who manages their business, filed a joint
income tax return for 1997 on March 15, 1998. After an audit of the return, the BIR issued on
April 20, 2001 a deficiency income tax assessment for the sum of P250.000.00, inclusive of
interest and penalty. For failure of Mr. and Mrs. Sebastian to pay the tax within the period stated
in the notice of assessment, the BIR issued on August 19, 2001 warrants of distraint and levy to
enforce collection of the tax.
A. What is the rule of income taxation with respect to Mr. Sebastian's income in 1997 as a
seaman on board the Norwegian vessel engaged in international shipping? Explain your answer.
(2%)
SUGGESTED ANSWER:
A. The income of Mr. Sebastian as a seaman is considered as income of a non-resident citizen
derived from without the Philippines. The total gross income, in US dollars (or if in other foreign
currency, its dollar equivalent) from without shall be declared by him for income tax purposes
using a separate income tax return which will not include his income from business derived
within (to be covered by another return). He is entitled to deduct from his dollar gross income a
personal exemption of $4,500 and foreign national income taxes paid to arrive at his adjusted
income during the year. His adjusted income will be subject to the graduated tax rates of 1% to
3%. (Sec. 21 (b), Tax Code of 1986[PD 1158], as amended by PD 1994).
[Note: The bar candidates are not expected to be familiar with tax history. Considering that this
is already the fourth year of implementation of the Tax Code of 1997, bar candidates were taught
and prepared to answer questions based on the present law. It is therefore requested that the
examiner be more lenient in checking the answers to this question. Perhaps, an answer based on
the present law be given full credit.]
B. If you are the lawyer of Mr. and Mrs. Sebastian, what possible defense or defenses will
you raise in behalf of your clients against the action of the BIR in enforcing collection of the tax
by the summary remedies of warrants of distraints and levy? Explain your answer. (3%)
SUGGESTED ANSWER:
B. I will raise the defense of prescription. The right of the BIR to assess prescribes after three
years counted from the last day prescribed by law for the filing of the income tax returns when
the said return is filed on time. (Section 203, NIRC). The last day for filing the 1997 income tax
return is April 15, 1998. Since the assessment was issued only on April 20, 2001, the BIR's right
to assess has already prescribed.
Real Property Tax; Requirements; Auction Sales of Property for Tax Delinquency (2006)
Quezon City published on January 30, 2006 a list of delinquent real property taxpayers in 2
newspapers of general circulation and posted this in the main lobby of the City Hall. The notice
requires all owners of real properties in the list to pay the real property tax due within 30 days
from the date of publication, otherwise the properties listed shall be sold at public auction.
Joachin is one of those named in the list. He purchased a real property in 1996 but failed to
register the document of sale with the register of Deeds and secure a new real property tax
declaration in his name. He alleged that the auction sale of his property is void for lack of due
process considering that the City Treasurer did not send him personal notice. For his part, the
City Treasurer maintains that the publication and posting of notice are sufficient compliance with
the requirements of the law.
1. If you were the judge, how will you resolve this issue? (2.5%)
SUGGESTED ANSWER:
I will resolve the issue in favor of Joachin. In auction sales of property for tax delinquency,
notice to delinquent landowners and to the public in general is an essential and indispensable
requirement of law, the non-fulfillment of which vitiates the same (Tiongco v. Phil. Veterans
Bank, G.R. No. 82782, Aug. 5, 1992). The failure to give notice to the right person i.e., the real
owner, will render an auction sale void (Tan v. Bantegui, G.R. No, 154027, October 24, 2005;
City Treasurer of Q.C. v. CA, G.R. No. 120974, Dec. 22, 1997).
2. Assuming Joachin is a registered owner, will your answer be the same? (2.5%)
SUGGESTED ANSWER:
Yes. The law requires that a notice of the auction sale must be properly sent to Joachin and not
merely through publication (Tan v. Bantegui, G.R. No, 154027, October 24,2005; Estate of
Mercedes Jacob v. CA, G.R. No. 120435,
Dec. 22, 1997).